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Military Taxes Demystified: Preparing to File the Right Way
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Military Taxes Demystified: Preparing to File the Right Way

Filing military taxes is different than that of a civilian, and understanding these nuances can be the difference between getting back all of the money you deserve or finding yourself in trouble with the Internal Revenue Service (IRS). Serving your country comes with many perks, including various tax-exemptions and other benefits that can help your household.

It’s important to note that your best bet is to speak with a professional when filing, such as the fine folks at TurboTax. While this guide aims to help the military community have a successful tax season, it should not be considered absolute. The tax code is a complex one, and seeking help from a licensed professional is always the way to go before any financial decision can be made.

Read next: New 2023 MilTax Software Makes Filing Taxes Easier for Military Members 

Do Military Pay Taxes?

Yes, even the military has to pay taxes. Though, military taxes typically only apply to federally taxed base pay. There are some states that require income taxes, but many wave these at the state level.

Deductions and other tax breaks can change depending on the filer, income level, and more, but when it comes to the other benefits military members receive, such as allowances for housing, such income is not taxable.

There is also a tax exclusion for combat service pay, which may also include not only members of the military but contractors working within combat regions. These areas can change depending on the military actions the U.S. is taking part in, and the full list of combat zones approved for tax benefits as of 2023 includes:

  • Sinai Peninsula.
  • Afghanistan.
  • Kosovo Area.
  • Arabian Peninsula Area.

These areas are not all comprehensive, and there may be certain regional/geographical parameters that may apply. Additionally, active-duty members can enjoy other deductions on their military tax return, including moving expenses and other potential tax breaks.

It’s also important to note that while troops don’t have to include combat pay, it can help you boost your Earned Income Tax Credit (EITC), ultimately reducing the amount of taxes you owe. This might even help you receive a refund, but you must either report all or none of your combat pay when doing so.

Servicemembers’ Civil Relief Act (SCRA)

The call of duty can mean taking care of things in a much different timeframe than in the civilian world. This is recognized by the Servicemembers Civil Relief Act (SCRA), which provides relief for military members who have civil obligations but are defending our country.

SCRA includes a variety of benefits, including helping service members with the interest they pay on debt, foreclosures, life insurance, and, of course, paying taxes. This is an important piece of legislation that can help anyone serving in the military devote their attention to their duty rather than their requirement to pay taxes.

Additionally, if you’re serving in combat zones, you will receive an automatic 180-day extension from the IRS for filing your tax returns, paying your taxes, and filing refund claims. Your extension also applies to making qualified contributions to an IRA, but you are still responsible for your Medicare and Social Security taxes.

Important Tax Breaks

The tax breaks for military members can affect how you file, the amount you’ll receive back/pay, and other areas of your tax return. We’ve already looked at the fact that you don’t have to pay taxes on combat pay, but here are some other important things you can exclude when you file:

  • Bonuses for re-enlisting.
  • Payment for accrued leave.
  • Repayment of student loans.
  • Penalty-free withdrawals of retirement plans.
  • Those in the Reserves can take early withdraws from an IRA and 401(k) account if they had to serve on active duty after September 11, 2001, for over 179 days. You must, however, make the withdrawal while still on active duty.
  • Your maximum interest rate is capped at 6%, as you can’t be changed more than 6% per year on the money you owe the IRS before enlisting and while a member of the military.
  • Various travel expenses can be used for a write-off. This includes when a member of the reserves must travel over 100 miles away.
  • Death benefits aren’t taxable, and there can be tax forgiveness that may apply to fallen Veterans who owed money to the IRS, were serving, and passed as a result of their service.

Military free tax filing is available, and working with an expert can help you not only receive free help but maximize your tax return. You have several options available to you, but none quite like TurboTax.

TurboTax Free for Military

Military taxes are complicated at best and deserve the expert care of a professional. Again, this guide is a great starting point but offers nothing like the professional help found at TurboTax. Besides the outstanding care and help you can receive, TurboTax offers free tax filing for military active-duty and reserve members.

Suggested read: Subsidized Food, Tax Advantages, and More Benefits of Joining the Army

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